Credit or debit cards?

In our country, we have always been credit card fans. In the west however, debit or charge cards are the norm alongside credit cards. We don’t really get offered debit cards here, until right about now.

I can’t be sure who started the ball rolling and why, but it’s really catching on. Now let us be on the same page, debit cards aren’t the same as prepaid cards. The latter require pre-loading of money into the card and once the credit is used up, a top-up is necessary. A debit card is linked to a deposit account, be it a savings or current account with the bank.

I first noticed the existence of such cards by Al Rajhi Bank when they opened their doors to Malaysians. If there were others in the market before Al Rajhi, do correct me. Then I spotted Public Bank’s debit card and recently Maybank just launched their debit card too. These debit cards also act as your ATM cards. In addition, these cards also offer reward point collection as you swipe, just like the credit cards.

To the debt conscious consumers, debit cards may be heaven sent because now we don’t need to carry cash and are still able to swipe a card without creating any debts, not to mention having to pay interest rates on a rolling credit balance. Since a debit card is linked to a deposit account, once swiped, the payment is taken out of the deposit account. It’s the wiser way to spend within your means and not get into financial woes. It has the same benefit of a credit card minus the danger of overspending. What’s not to like about debit cards?

I suspect more and more banks are jumping onto the band wagon to provide their customers with debit cards. I wonder then, what happens to their credit card market if the society suddenly becomes more financial savvy and decide the debit cards are the smarter way to go. Isn’t this killing their credit card business?

I’m not sure how banks may earn from a debit card. Sure it links to a deposit and the more you swipe, the more you need to have in your deposit account. But a deposit account is one where the bank pays interest whilst the credit card is where the bank charges its customers interests. So what do banks get out of issuing debit cards? Are they doing this because they foresee their competitors doing it and they too need to catch up?

That was just a wondering on my part. For me, a debit card would encourage me to terminate the many credit cards that I have. I’m waiting for my bank to issue me one soon…and I’m sure it won’t be a long wait.